The topic of this thesis is the modeling of risks in interest-rate and inflation
markets.
Interest-rate risk is an important issue to investors. For instance, according
to BIS (2010) the notional value of over-the-counter interest-rate derivatives
markets is 465,260 billion US-dollar. This corresponds to 77 percent of the
notional of the entire OTC derivatives market. Thus interest-rate derivatives
is at the back-bone of the financial markets. According to ISDA (2009)
83 percent of Fortune 500 companies report using interest-rate derivatives in
their risk management. Furthermore, many mortgage-based loans and pension
contracts contain either explicit or implicit interest-rate options. Thus
a better understanding of the interest-rate derivative markets, and the risk
associated with the traded products is of great value, both to financial and
non-financial companies as well as individuals....